Social Entrepreneurship

Tips For Donating Cash

Written by Tim Morral for Gaebler Ventures

Companies that make donations to good causes play an important role in making the world a better place. But, as with any business activity, there are a few best practices you'll want to embrace before your company jumps full force into donating money to nonprofit organizations.

Whether you're a full-blown social entrepreneur or just a regular small business owner trying to do the right thing, cash donations are part of your normal routine.

But what separates a donating dream from a charitable catastrophe? Better yet, how can you tell the difference?

Cash donations are the backbone of good works in the U.S. By far, the largest sources of income for nonprofits and charities are not grants or fees, but private donations - and the vast majority of those donations are in the form of cash.

Yet as a small business owner, it just isn't prudent to write a check to anyone who comes looking for a handout. A cash donation - no matter how big or small - constitutes a giving relationship between you and a nonprofit organization, and both parties have to fulfill certain obligations in order for the relationship to be successful.

Fortunately, you can maintain a healthy giving relationship by simply remembering a few, helpful guidelines - the four "R's" of cash donations.

Reputation

Most nonprofits are legitimate community assets. However, counterfeits do exist and unless you are prepared to deal with them, they can exploit your generosity for personal gain.

If possible, limit donations of cash to nonprofits that have an established reputation in your local community. Should you feel compelled to donate to an unfamiliar nonprofit, request documentation including copies of the organization's annual report, newsletter, and 501(c)(3) approval before dropping a check in the mail. If you are making a large donation, you may also want to consult with your attorney to determine the organization's current legal status.

Restricted Use

The only way to make sure your cash will be used for a specific purpose is to designate its use at the time of the donation. If you fail to do so, your donation will be considered an unrestricted contribution and its usage will be completely out of your control. To restrict the use of your donation, clearly describe its intended use in a letter that accompanies the donation and summarize its use on the description line of your check. Once your donation has been properly designated, the nonprofit will contact you before reallocating it for a different purpose.

Receipt

One of the perks of a cash donation is that it can be used as a deduction for tax purposes . . . If you get a receipt. Some nonprofits prefer their donors to use the acknowledgement (or "thank you") letter as a receipt, while others provide their contributors with a year-end giving statement. Either way, contact your nonprofit if you haven't received some kind of receipt within a month of your donation.

Recognition

Hopefully your donation is motivated by something nobler than a desperate need for attention. Even so, it's nice to be recognized for your efforts, especially since recognition could lead to increased business for your company. Unless you are making a major gift, it's unreasonable to make your donation conditional on a specific form of recognition. On the other hand, it never hurts to ask the nonprofit about their standard recognition procedure after you have decided to donate.

Tim Morral is a veteran business writer who specializes in helping entrepreneurs launch and grow their companies. Based in Rochester, NY, Tim has worked extensively in the areas of brand communications and small business content creation.

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities

Contributors

Business Glossary